05/21/2012

Charitable IRA Distributions In Play

Congress hasn't reauthorized the law allowing people to give required minimum distributions from IRAs tax-free to charity but may by the end of the year.

Are you taking Required Minimum Distributions (RMD) from your IRA? Perhaps you would rather contribute your RMD to the charity (or charities) of your own choosing rather than to the IRS. Do you have a RMD to take from your traditional IRA and don’t know what to do with it?

Ironically, RMDs can be a hassle when you don’t need them. Why? Because they can trigger some unfortunate income taxes and they are only “required” for the sake of taxation.

In the past there was the possible saving grace of distributing your RMD directly to charity, as an alternative to the IRS. Unfortunately, the laws that allowed direct distributions from your IRA to charity expired in 2011 and have yet to be written for this year. Accordingly, it may be wise to wait until later in the year to take your RMD (assuming you don’t need it now).

Regardless, it is possible that the “freedom of choice” approach to charitable distributions will be resurrected. It is a small comfort, at least, that this is a taxation matter that even Congress might heartily approve, assuming they get the chance.